ITAT Allows Deduction Under Section 80P for Interest Income Received from Cooperative Bank

ITAT Allows Deduction Under Section 80P for Interest Income Received from Cooperative Bank

Introduction

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that interest/dividend income received from a cooperative bank is deemed to have been received from a cooperative society, allowing deduction under section 80P of the Income Tax Act, 1961.

Factual Background

The assessee, Tamil Nadu Special Police, is a Thrift and Credit Society registered under the Tamil Nadu Co-operative Societies Act, 1983. The assessee received interest income and dividend income from Kanchipuram Central Co-operative Bank Ltd., which was treated as "income from other sources" by the Assessing Officer (AO), thereby disallowing the claim of deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act.

Procedural Background

The AO completed the assessment under section 147 r.w.s. 144B of the Act, treating the income received from Kanchipuram Central Co-operative Bank Ltd. as "income from other sources". The First Appellate Authority (FAA) confirmed the addition made by the AO.

Contentions of Parties

Assessee: The assessee contended that Kanchipuram Central Co-operative Bank Ltd. is a cooperative society registered under the Tamil Nadu Co-operative Societies Act, 1983, and therefore, the interest/dividend income received from the bank is eligible for deduction under section 80P(2)(d) of the Act.

Revenue: The revenue contended that the income received from Kanchipuram Central Co-operative Bank Ltd. is "income from other sources" and not eligible for deduction under section 80P(2)(d) of the Act.

Reasoning and Analysis

The two member bench Shri George George K, Vice President and Shri Amitabh Shukla, Accountant Member held that Kanchipuram Central Co-operative Bank Ltd. is a cooperative society registered under the Tamil Nadu Co-operative Societies Act, 1983, and therefore, the interest/dividend income received from the bank is deemed to have been received from a cooperative society. The Tribunal relied on its earlier order in the assessee's own case for assessment year 2020-21, which had concluded that Kanchipuram Central Co-operative Bank Ltd. is a cooperative society registered under the Tamil Nadu Co-operative Societies Act, 1983.

Implications

The ITAT's decision has significant implications for cooperative societies and banks. The decision clarifies that interest/dividend income received from a cooperative bank is eligible for deduction under section 80P(2)(d) of the Act, provided the bank is registered under the relevant state cooperative societies Act.